Holden biotech firm in merger deal

Finance can create some odd creatures. This comes to mind in considering the fate of Hygeia and Canterbury Labs — owners of dermatology-related intellectual property — that operates from the homes of CEO Yael Schwartz and her co-founder in the Worcester area.

What's odd is that a publicly traded shell company, Stratus Media, is acquiring Hygeia and Canterbury Labs for an unspecified number of shares of stock. The effect of this will be for two companies with very little cash to merge, and make their shares available to the public.

In an Oct. 1 interview with Ms. Schwartz, I learned that she is ecstatic.

"It happened very quickly, and it's a pleasure to meet people who understand our space and what it takes to commercialize our product. I am thrilled to be able to work with people who have a track record of success in this space. How wonderful is that?"

Holden-based Hygeia Therapeutics is trying to develop a special form of an anti-androgen that can treat acne, excess facial hair and hair loss, and an estrogen treatment that can treat urogenital and skin problems faced by menopausal women.

In April 2012, Hygeia assigned the patents for the anti-androgens — originally developed at Yale Medical School — that treat acne, excess facial hair and hair loss to a subsidiary called Canterbury Labs.

When I spoke with Ms. Schwartz on June 13, she sounded more excited than ever, expecting that by now she would raise $12 million for Canterbury from wealthy individuals, known as angel investors.

Back then, she said Canterbury remains a "virtual company," meaning it has no office space, and its three employees work from their homes. According to Ms. Schwartz, "I work from my house in Holden; our chief scientific officer works from Seattle; and our chief operating officer is in Minnesota."

But things have changed fast for Ms. Schwartz's ventures.

"We started working with Torreya Partners, a Manhattan-based firm that connects companies and investors. Within a few weeks, we were introduced to Isaac Blech (a biotechnology entrepreneur and investor whose brother, David, was sentenced to four years in prison for manipulating stock prices, according to Bloomberg) and Sol J. Barer (the former chairman and CEO of biotech company Celgene). They liked what they saw, did their due diligence and about three months later, we did the deal," she explained.

It is not clear what the terms are for this deal, however. According to Ms. Schwartz, "The deal to acquire Hygeia and Canterbury is for stock. But a future press release will provide more details."

The company that will do the acquiring is a publicly traded "shell" called Stratus Media. It has no revenue and at the end of June sported $80,000 in cash, and a market value of $46 million as of Oct. 2. Moreover, Santa Barbara, Calif.-based Stratus media described itself as "operating and marketing live sports and entertainment events."

Meanwhile, the press release announcing Ms. Schwartz's deal said that Stratus Media would change its name to Restorgenex Corp., and would appoint Mr. Barer as chairman and Mr. Blech as vice chairman, effective Nov. 1. Ms. Schwartz will join "Restorgenex's board of directors, and be president of the Canterbury and Hygeia division of the company."

Ms. Schwartz will be hiring people.

"We need to hire people who can develop and market our products. We will bring in marketing people and add to our scientific staff," she said.

While Ms. Schwartz is proud that her companies were born in Worcester, they won't stay in the city. "This is a great success story for a company that was born in Worcester. But we need to be located in a place where it is easy to get from the airport to our offices. It is too hard for people to fly into Worcester airport and meet with us now. So we will look for office space closer to Route 495."

Meanwhile, despite the lack of clarity of the terms of the deal between Stratus Media and Canterbury and Hygeia, Ms. Schwartz is confident that there will be plenty of cash to commercialize her companies' products.

"We will be fully functioning very quickly because Isaac and Sol know how to raise money. It is really very exciting," she said.

Given all the risk in starting a biotech company, I would not advise anyone to put money into publicly traded Stratus Media. In my mind, there is enormous uncertainty about whether the company — with its new name — will be able to raise capital, attract talent, develop its product to satisfy regulators, and find a way to manufacture, distribute and market it.